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Diversified Restaurant Holdings Reports 5.8% Increase in Same-Store Sales for Second Quarter 2019

Published : Wednesday, August 14, 2019, 1:15 pm
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TROY, Mich.--(BUSINESS WIRE)--Diversified Restaurant Holdings, Inc. (Nasdaq: SAUC) ("DRH" or the "Company"), one of the largest franchisees for Buffalo Wild Wings® ("BWW") with 64 stores across five states, today announced results for its second quarter ended June 30, 2019.


Second Quarter and Year to Date Information (compared with prior-year period unless otherwise noted)

  • Revenue totaled $38.9 million, up 5.1% despite one fewer restaurant
  • Same-store sales increased 5.8% with both traffic and average ticket up
  • Net loss significantly reduced to $0.5 million
  • Restaurant-level EBITDA(1) was $5.7 million or 14.6% of sales
  • Adjusted EBITDA(1) was $3.9 million or 9.9% of sales
  • Total debt of $96.6 million was down $5.9 million for the year-to-date period

(1)

 

See attached table for a reconciliation of GAAP net loss to Restaurant-level EBITDA and Adjusted EBITDA

We achieved same-store sales growth for the third consecutive quarter, driven by our continued focus on the delivery channel, a favorable sports impact in our core markets and the improvements being made to the brand," commented Michael Ansley, Executive Chairman of the Board, President and Interim CEO. “While we continue to face headwinds around chicken wing prices, labor costs and delivery fees, we have rationalized our operations and overhead and, as a result, expect to better leverage our sales growth with improved earnings as we move forward. We removed $1.5 million in annualized costs and have identified another $0.5 million in additional savings as we have optimized our local marketing spend to more efficiently leverage our franchisor’s national advertising campaigns.”

Buffalo Wild Wings is getting back to its roots with the fall advertising push and brand relaunch that are underway. There will be increased national advertising focused on football and the introduction this month of significant elements in support of the brand relaunch with the rollout of enhanced chicken products. The new hand-breaded chicken tenders, two new hand-breaded chicken sandwiches and new improved boneless wings are truly a step-change in quality and product offering, and we believe will drive additional traffic. We are also excited about the relaunch of BOGO Wing Tuesday, a long-time staple of BWW customers and an important component of our value proposition. By continuing to focus on delivering quality and value to our customers, we believe we are positioning BWW and DRH for long-term success.”

Mr. Ansley added, “We continue to work with our advisors on our previously disclosed evaluation of strategic alternatives for the business and to restructure our debt.” DRH does not intend to discuss or disclose developments with respect to this process until the Board has approved a definitive course of action.

Second Quarter Results

 

 

 

 

 

 

 

 

(Unaudited, $ in thousands)

 

Q2 2019

 

Q2 2018

 

Change

 

% Change

Revenue

 

$

38,920.2

 

 

$

37,039.1

 

 

$

1,881.1

 

 

5.1

%

Operating profit

 

$

1,040.0

 

 

$

262.8

 

 

$

777.2

 

 

295.8

%

Operating margin

 

2.7

%

 

0.7

%

 

 

 

 

Net loss

 

$

(469.3

)

 

$

(1,172.2

)

 

$

702.9

 

 

(60.0

)%

Diluted net loss per share

 

$

(0.01

)

 

$

(0.04

)

 

$

0.03

 

 

(75.0

)%

 

 

 

 

 

 

 

 

 

Same-store sales

 

5.8

%

 

(6.4

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

Restaurant-level EBITDA(1)

 

$

5,664.1

 

 

$

5,540.2

 

 

$

123.9

 

 

2.2

%

Restaurant-level EBITDA margin

 

14.6

%

 

15.0

%

 

 

 

 

Adjusted EBITDA(2)

 

$

3,858.1

 

 

$

3,641.2

 

 

$

216.9

 

 

6.0

%

Adjusted EBITDA margin

 

9.9

%

 

9.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Year-to-date Results

 

 

 

 

 

 

 

 

(Unaudited, $ in thousands)

 

YTD 2019

 

YTD 2018

 

Change

 

% Change

Revenue

 

$

79,488.3

 

 

$

76,572.0

 

 

$

2,916.3

 

 

3.8

%

Operating profit

 

$

2,577.5

 

 

$

1,734.6

 

 

$

842.9

 

 

48.7

%

Operating margin

 

3.2

%

 

2.3

%

 

 

 

 

Net loss

 

$

(413.8

)

 

$

(1,012.3

)

 

$

598.5

 

 

(59.1

)%

Diluted net loss per share

 

$

(0.01

)

 

$

(0.04

)

 

$

0.03

 

 

(75.0

)%

 

 

 

 

 

 

 

 

 

Same-store sales(1)

 

5.0

%

 

(7.5

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

Restaurant-level EBITDA(2)

 

$

12,043.0

 

 

$

12,438.3

 

 

$

(395.3

)

 

(3.2

)%

Restaurant-level EBITDA margin

 

15.2

%

 

16.2

%

 

 

 

 

Adjusted EBITDA(2)

 

$

8,355.6

 

 

$

8,712.9

 

 

$

(357.3

)

 

(4.1

)%

Adjusted EBITDA margin

 

10.5

%

 

11.4

%

 

 

 

 

   

(1)

 

Please see attached table for a reconciliation of GAAP net loss to Restaurant-level EBITDA and Adjusted EBITDA

The increase in revenue reflects higher delivery sales and a number of favorable major sporting events in the Company’s core markets, partially offset by the impact of the Easter holiday where the DRH restaurants are closed. Easter fell within the first quarter of 2018 versus the second quarter of 2019.

General and administrative ("G&A") expenses as a percentage of sales decreased 100 basis points to 4.9% due to lower corporate overhead and other efficiency initiatives, partially offset by higher incentive accruals. For the full year of fiscal 2019, the Company is targeting G&A expenses below 5% of sales, excluding non-recurring items.

Food, beverage, and packaging costs as a percentage of sales increased 80 basis points to 29.3% primarily due to higher traditional chicken wing costs. Average cost per pound for traditional bone-in chicken wings, DRH’s most significant input cost, increased to $2.10 in the second quarter of 2019 compared with $1.66 in the prior-year period.

Higher average wages due to a tight labor market resulted in compensation costs as a percent of sales increasing 10 basis points to 27.6%.

Other operating costs as a percentage of sales decreased 60 basis points to 20.9%, which reflects the Company's ongoing focus on lessening the impact of third party delivery fees and IT cost saving initiatives.

Balance Sheet Highlights

Cash and cash equivalents were $3.3 million at June 30, 2019, compared with $5.4 million at the end of 2018. Capital expenditures were $1.2 million during the first six months of 2019 and were for minor facility upgrades and general maintenance-type investments, but also included approximately $0.2 million invested in the plate ware upgrades introduced in March. DRH does not expect to build any new restaurants or complete any major remodels in 2019. As a result, the Company anticipates its capital expenditures will approximate $2.0 million in fiscal 2019.

Total debt was $96.6 million at the end of the quarter, down $5.9 million since 2018 year-end.

Webcast, Conference Call and Presentation

DRH will host a conference call and live webcast on Thursday, August 15, 2019 at 10:00 A.M. Eastern Time, during which management will review the financial and operating results for the second quarter, and discuss its corporate strategies and outlook. A question-and-answer session will follow.

The teleconference can be accessed by calling (201) 389-0879. The webcast can be monitored at www.diversifiedrestaurantholdings.com. A presentation that will be referenced during the conference call is also available on the website.

A telephonic replay will be available from 1:00 P.M. ET on the day of the call through Thursday,

August 22, 2019. To listen to the archived call, dial (412) 317-6671 and enter replay pin number 13692782, or access the webcast replay at https://www.diversifiedrestaurantholdings.com, where a transcript will also be posted once available.

About Diversified Restaurant Holdings, Inc.

Diversified Restaurant Holdings, Inc. is one of the largest franchisees for Buffalo Wild Wings with 64 franchised restaurants in key markets in Florida, Illinois, Indiana, Michigan and Missouri. DRH’s strategy is to generate cash, reduce debt and leverage its strong franchise operating capabilities for future growth. The Company routinely posts news and other important information on its website at https://www.diversifiedrestaurantholdings.com.

Safe Harbor Statement

The information made available in this news release and the Company’s August 15, 2019 earnings conference call contain forward-looking statements which reflect DRH's current view of future events, results of operations, cash flows, performance, business prospects and opportunities. Wherever used, the words "anticipate," "believe," "expect," "intend," "plan," "project," "will continue," "will likely result," "may," and similar expressions identify forward-looking statements as such term is defined in the Securities Exchange Act of 1934. Any such forward-looking statements are subject to risks and uncertainties, actual growth, results of operations, financial condition, cash flows, performance, business prospects and opportunities could differ materially from historical results or current expectations. Some of these risks include, without limitation, the franchisor waiving its right of first refusal, our ability to obtain financing for the acquisition, the success of initiatives aimed at improving the Buffalo Wild Wings brand, the impact of economic and industry conditions, competition, food safety issues, store expansion and remodeling, labor relations issues, costs of providing employee benefits, regulatory matters, legal and administrative proceedings, information technology, security, severe weather, natural disasters, accounting matters, other risk factors relating to business or industry and other risks detailed from time to time in the Securities and Exchange Commission filings of DRH. Forward-looking statements contained herein speak only as of the date made and, thus, DRH undertakes no obligation to update or publicly announce the revision of any of the forward-looking statements contained herein to reflect new information, future events, developments or changed circumstances or for any other reason.

FINANCIAL TABLES FOLLOW

 

DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 2019

 

July 1, 2018

 

June 30, 2019

 

July 1, 2018

Revenue

 

$

38,920,245

 

 

$

37,039,073

 

 

$

79,488,329

 

 

$

76,572,030

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

Restaurant operating costs (exclusive of depreciation and amortization shown separately below):

 

 

 

 

 

 

 

 

Food, beverage, and packaging costs

 

11,410,718

 

 

10,563,039

 

 

23,095,113

 

 

21,695,416

 

Compensation costs

 

10,746,736

 

 

10,167,398

 

 

21,653,029

 

 

20,332,053

 

Occupancy costs

 

3,002,484

 

 

2,806,370

 

 

5,940,538

 

 

5,750,210

 

Other operating costs

 

8,138,118

 

 

7,962,070

 

 

16,826,279

 

 

16,356,025

 

General and administrative expenses

 

1,923,022

 

 

2,169,732

 

 

4,162,969

 

 

4,423,660

 

Depreciation and amortization

 

2,643,959

 

 

3,100,745

 

 

5,209,329

 

 

6,267,245

 

Loss on asset disposal

 

15,191
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